Malaysia and Australia on Tuesday signed a free trade agreement (FTA) that will strip away tariffs and which Canberra hopes will help jump-start negotiations with China, South Korea and Japan.

The agreement inked in Kuala Lumpur will grant Malaysian exporters duty-free entry into the Australian market once the trade deal comes into force in January 2013.

Malaysian trade minister Mustapha Mohamad hailed the deal — which the two sides first began negotiating in 2005 — as “historic”.

“Australian exporters to Malaysia will also be able to immediately enjoy significantly reduced tariffs for goods, reaching up to 99 percent by 2020,” he said at a signing ceremony with Australian Trade minister Craig Emerson.

Malaysia Trade minister Mustapha Mohamed (L) exchanges documents with Australia Trade minister Craig Emerson during a signing ceremony in Kuala Lumpur. The trade deal, called MAFTA, will guarantee a large percentage of goods imported by Malaysia from Australia will receive a tariff-free entry. (AFP)

Australia has several similar agreements, including with Singapore, Thailand and the United States, and bilateral negotiations with China, Japan and South Korea are under way.

Emerson said on Monday he believed the Malaysia deal would act as “an indication to countries like Japan, China, Korea and Indonesia that we are serious about seeking to conclude high-quality FTAs”.

Mustapha said Malaysian exporters of iron, steel, plastic, wood and furniture would see duties ranging from 5-10 percent removed next year.

The deal, the sixth FTA for each country, is the first providing Malaysia with immediate tariff elimination on all exports once brought into effect.

The agreement also allows Malaysian investors to participate in Australian private hospital services including massage, homeopathy and traditional medicine.

Malaysia, meanwhile, has agreed to allow 100 percent equity holdings by Australian entities in the Malaysian education and telecommunication sectors, and 70 percent holdings in the Malaysian insurance and investment-banking sectors.